Risk transfer techniques are vastly employed and implemented in many prior art risk management systems and insurance technology systems. Thus, in the last decade, apart from the traditional channels of financing risks, alternative routes based on automated, self-sufficient risk transfer systems and/or insurance systems have been developed. Self-sufficiency or self-containment in the context of this document means directed to system with automated operation. Thus, self-sufficiency defines an operation state of not requiring any aid, support, or interaction, for keeping up the operation, i.e. the system able to provide a survival of its operation independent of any human interaction. Therefore, it is a type of operational autonomy of an automated system. On an operational automation scale, a system with totally self-sufficient operation does not need external adjustment for its operation to initiate or uphold its operation, i.e. is able to work in operational autarky. The present invention extends this technology to a layered risk transfer technique with a mutually tuned trigger structure, thereby reinforcing the importance of developing automated systems allowing a self-sufficient operation. Mutually tuned means, that the trigger parameter of the trigger structure are mutually adapted and negotiated between the trigger layers. It is a necessary pre-requirement for the technical operation of such systems that the involved payment and cash flow management devices be employed to match different segments of loss distribution, as e.g. stop loss and reverse development cover distributions. The layered structure of the system of the present invention allows for a new form of restructuring the underlying risk management resources or capital combining prospective and adverse or retrospective effects by capturing appropriate parameters.
Loss prevention systems and optimized insurance systems have long been and still are the most important part in automatized risk transfer systems to provide effective protection against various types of risks. Modern insurance systems have been largely concentrated on the problem of how a large number of risk-averse components can beneficially and automatically transfer their risks. Since the underlying problem has a statistical nature, the likelihood of a risk transfer system being triggered by a risk event comes close to certainty over an appropriate long time horizon, and the operation of the system thus cannot be steered by the condition of measuring the occurrence of a risk event, but rather when such a risk event is measured. An optimized operation of a risk transfer or insurance system depends on its structure and tuning based on the ability to predict future risk event measurements. The level of uncertainty is high, since it affects the risk transfer structure and operation of the system. To relieve this problem, one of the characteristics of risk transfer systems is the pooling of risks and risk transfers. In the prior art, the pooling of risk transfers can typically involve the grouping, selecting and filtering of various risk exposures, so that the law of large numbers can operate to provide a more accurate prediction of future losses. From a technical point of view, if the losses associated with risk transfer are more predicable, the operation and management of the actual risk transfers can be optimized. Additional risk transfer is another important element, where first risk transfer or insurance systems can optimize or stabilize operation by partially shifting pooled risks to a third system, as a second insurance system.
Automated systems for risk transfer have been used for quite some time in the state of the art as a technical tool to manage the risk of uncertain losses, in particular to keep up operation of functional, technical or business units. These days, significant risk exposure is associated with many aspects in the life and non-life sectors. Risk exposed units, such as any kinds of objects, individuals, corporate bodies and/or legal entities, are necessarily confronted with many forms of active and passive risk management to hedge and protect against the risk of certain losses and events. The prior art addresses such risks of loss, for example, based on transferring and pooling the risk of loss from a plurality of risk exposed entities to a dedicated pooling entity. In essence, this can be executed by effectively allocating the risk of loss to this pooling unit or entity in that the resources of associated units, which are exposed to a certain risk, are pooled. If one of the units is hit by an event that is linked to a transferred risk, the pooling entity directly intercepts the loss or damage caused by the event by transferring resources from the pooled resources to the affected unit. Pooling of resources can be achieved by exchanging predefined amounts of resources with the resource-pooling system; e.g., payments or premiums that are to be paid for the transfer of the risk. This means that predefined resource amounts are exchanged for the other unit, thereby assuming the risk of loss.
As described above, insurance systems use resource pooling systems to pool the resources and risks of associated risk-exposed components. However, to avoid operational instabilities, often such resource pooling systems of an insurance system are coupled to one or more other resource pooling systems in order to redistribute parts of their pooled risks. Correspondingly, a loss that is to be covered can be segmented by those coupled insurance systems, wherein in order to switch from one insurance system to another insurance system, technically a risk transfer structure must be provided by the systems.
Typically, risk associated with risk-exposed components can roughly be divided in three categories, i.e., expected risks, unexpected risks and catastrophic risks. The systems covering expected risks can simply be based on setting an appropriate threshold value for a resource retention, which should equalize the amount of pooled risks. The unexpected risks, e.g., operational risks, risk based on an excessively low selected retention level, or risks occurring out of IBNR losses, i.e., incurred but not [yet] reported, cover prospective as well as retrospective risk covers, or so-called adverse development cover (ADC). The last part of possible losses concerning catastrophic risks are technically even more difficult to capture, since they do not obey the law of large numbers. Traditional prior art systems are directed to catastrophic derivatives, securitization and contingency financing, in particular to transfer risks by appropriate structures to the capital market. Due to the different characteristics of the risks to be captured, the prior art systems fail to cover different risk transfers from different categories, in particular since the operation of prior art systems needs to be specifically adapted and optimized to cope with specific risk characteristics. Thus, in the prior art, each specific type of risk event needs to be covered by a different risk transfer system or mechanisms, which makes the operation and optimization of the risk cover difficult and confusing for risk-exposed components. The goal of minimizing the total risk exposure of a risk-exposed component and/or an insurance system under different boundary criteria, such as criteria of value at risk or conditional value at risk, i.e., by finding the optimal balance between the benefit (reducing the risk by purchasing reinsurance shares) and the cost (premiums) of the redistributed insurance risk shares, is difficult to achieve. Therefore, the object of the present invention addresses the technical problem of coupling two automated resource pooling systems with the goal of pooling the risk exposure of associated components and seeking better and more effective technical implementations based on an appropriate risk transfer structure covering the different aforementioned risk categories, i.e. is broader in its applicable scope and easier to be placed.
The prior art specifies a plurality of systems addressing the above-mentioned problem. For example, US 2004/0236698 A1 describes a system for automated risk management trade between two coupled systems; in particular, an insurance system and a reinsurance system. This system provides for the transfer of premiums and loss payments directly between the risk-pooling systems. Further, the system allows for interactions between the two coupled systems, which allows for decision-making functions concerning reinsurance products. However, US 2004/0236698 A1 does not describe how a transfer structure should be designed for a specific system, or how the insurance system should optimize its own risk exposure for the process of determining the mitigation of its own risk. Another example of the known prior art in the field of automated risk transfer systems is US 2011/0112870 A1. US 2011/0112870 A1 discloses a system for determining a percentage for assigning, i.e., transfer-related risk in an insurance pool, wherein the transferred risks are shared via a secondary resource pooling system that is based on predefined transfer-specific conditions of a reinsurance contract. The system mainly allows for automatically providing information regarding losses, which is transferred to the captive resource pooling system in the insurer's system and the reinsurer's system. However, US 2011/0112870 A1 does not disclose a general method for determining the amount of the actual risk transfer or covering different risk categories. Still another example of a prior art patent in the field of optimal risk transfer strategies is U.S. Pat. No. 7,970,682 B1. U.S. Pat. No. 7,970,682 B1 discloses a system that automatically provides a primary resource pooling system's risk transfer structure to accommodate the long-standing exposure of liabilities, achieve significant risk transfer to a third party (reinsurer), reduce potential financial reporting inconsistencies between hedge assets and liabilities, decrease operational risk, and lastly, reduce exposure to rollover risk (due to changes in the cost of hedging instruments); i.e., in effect, tools for ensuring the operational stability of the primary resource pooling system. U.S. Pat. No. 7,970,682 B1 is not specifically directed at the risk transfer structures of the pooled risk of a primary resource and risk pooling system; instead, U.S. Pat. No. 7,970,682 B1 is another example for an adaption of a primary insurance system's risk strategies. However, nothing in the prior art provides a system for a risk transfer structure capable of covering different categories of risks.
In summary, in the prior art, existing systems, whose operations are at least partially based on risk transfer schemes or structures, come in many different forms, often with very different objectives and operational approaches. However, typically, the range of schemes or structures of the prior art systems are specific to one particular risk, risk category, locality, sector or country, supporting the view that there is no ‘one-size-fits-all’ solution in the prior art.